Cost system of Shamlan Water Factory - Sana'a

Submitted to the Lebanese International University, Yemen

School of Business

In Fulfillment of the

Requirements for

Course – Advance Managerial Accounting

By

Bushra Hameed Alward

ID No. 61920120

Supervised by Dr.Mohammed Alawlaqi

Campus, Sana’a
Content:

1) Executive Summary

2) The production process

3) Treated

4) The structure of the process

5) Resources

6) Costs Classification

7) Manufacturing process

8) Recommendation
1. Executive Summary

Arwa Mineral Water Company is one of the leading water companies in the Republic of Yemen.
It was established on May 16, 1978, as one of the Yemeni limited companies. A number of
geological studies were carried out in several regions of the country, with the participation of
specialized international companies. The selection of the Shamlan region was the most suitable
place for implementation, and the project was the thriving outcome of these studies. Previous
studies carried out before the implementation of the project proved that Shamlan is
distinguished from other regions, because it contains natural and largely pure water, with high
international specifications of quality and purity. A number of specialized technicians perform
regular water checks by taking random samples to be tested in the laboratory, which in turn is
equipped with advanced devices. Other samples are sent regularly to the specialized
international laboratories and scientific centers, which always grant Arwa certificates that
attest to the high quality and purity of Shamlan water.

 Vision:

To be the leader in producing pure natural mineral water of the highest quality and

international standards in Yemen and the region.

 Mission

Producing pure and healthy bottled water in line with international quality standards through

the use of the latest technologies in water purification and preparation in order to meet the

needs of customers and the market. Full commitment to the standards of occupational safety,

quality, teamwork, continuous development, matching everything new in our field and a sense

of social responsibility.

 Principles:

1 - Producing healthier and clear water that meets international quality and safety standards.

2 - Commitment to occupational safety and social responsibility.

3- Teamwork.

4 - Transparency.

5- Technical competence.

 Objectives
1. Improve the company's profitability and productivity.

2. Get the highest market share.

3. Maintaining leadership in the field of pure water production in Yemen.

4. Create a stable and safe work environment for our employees.

5. Get experienced and skilled staff.

2. The production process

Shamlan area is surrounded by the mountains of Wadi Dhahr and a lot of farms, and this gives us the
best natural and pure water of high quality and contents suitable for human consumption.

●for more than 30 years, Arwa Mineral Water Company has been providing high quality water that is
pure, fresh and healthy for everyone.

● As Arwa Mineral Water Company was established in late 1978, Arwa Mineral Water Company has
always searched for ways to modernize and develop its industrial facilities by bringing in the best
equipment and technology available to its factories.

● Bring the best equipment technology

● Arwa Mineral Water Company employs highly skilled and efficient employees, ensuring the best
quality of water for the consumer
 The vial Coverage Packing The final product
Bloating Injection

Packing standards

Bottle size Packing Number of bottles carton

75, Liter Cartons 20 vials 77 cartons

Pallet loading
20 ft. container
40 feet container

1.5 liters Cartons 12 bottles 77 artons

Pallet loading
20 ft. container
40 feet container

3. Treated
The production process passes through the sections specified below:

 Laboratory department:
1- The nomination process:

At this stage, mixed impurities are blocked while water is pumped from
the wells through pre-filters and this process is carried out in several
tanks.
2- Purification process:

In this process, the water undergoes a more accurate cleaning

process with the help of sterilization with a fine filter. The water is
sterilized while being pumped into sophisticated ultraviolet
compartments. Then the water undergoes ozone treatment.

3- Sterilization process:

This stage witnesses the most advanced sterilization process using a

very advanced system according to international standards.

 Bottle and cap manufacturing

Bottles and lids are made in the process. This section is equipped with special machines and
automatically takes us to the third and final stages of this course

 Packaging:

In this final stage, many automatic processes occur from filling the bottles with pure sterile
water, to covering the bottles with lids, then pasting the stickers onto the bottles and placing
them in the boxes.
 4. The structure of the process

5. Resources
The main inputs for mineral water manufacture are technological, water, energy and raw materials
inputs. Consumables and human resources. Which is next:

o Direct material
 A water molecule consists of two atoms of hydrogen bonded to one atom of
oxygen. The chemical symbol is H 2 O. Water usually also contains a wide range
of organic and inorganic materials in solution or suspension.
 In the process of treating water for use in a municipal system, several chemicals
may be added. These include disinfectants like chlorine, chloramine, or ozone;
coagulant ants like aluminum sulfate, ferric chloride, and various organic
polymers; acidity neutralizers like caustic soda or lime; and chemicals to help
prevent tooth decay in the form of various fluoride compounds.
o direct labor
 Production Supervisor No. 2
 A chemical number 2
 1 maintenance engineer
 Technician number 4
 Machinery operator, number 3
 2 production factor
 1 cleaner

o Overhead
 Liquid Aluminum Sulfate
 Liquid Caustic Soda
 Anionic Polymer
 Hydrated lime.

o Indirect Materials
 Laboratory chemicals, oils, lubricants and machine consumables such as water
filter elements and ultra-violet lamps, workmen’s clothing and miscellaneous
cleaning.
 Office supplies. These requirements will be sourced from equipment suppliers
and existing local channels.

o Indirect labor
 1 sales manager
 2 sales supervisor
 Delegate and driver number 20
 20 distribution factor
 warehouse keeper
 Fork Drive
 Executive director number 1
 Financial management number 2
 Secretary No. 1
 Personnel Officer, number 1
 Security guard number 1
o Overhead
 Lid
 Labeling
 Plastic packaging
 glue
6. Costs Classification
Costs element Costs classification

Administrative and Chairman of Board of Period cost

general expenses Directors

Deputy Chairman of the Period cost

Board

CEO Period cost

Chief Financial Officer Period cost

Accounting Dept. Period cost

Sales & Marketing Dept. Period cost

Period cost
Purchasing
Administrative needs
Cost of Product Purchasing Raw Material Product cost

Production Manager Product cost

Quality Dept. Product cost

Laboratory Dept. Product cost

Maintenance Manager Product cost

Mechanical Dept. Product cost

Electronica Dept. Product cost

Electrical Dept. Product cost

7. Manufacturing process
There are several stages in the manufacturing process, and each stage includes direct materials, direct
labor, and general manufacturing in Arwa Mineral Water Company. There are five manufacturing stages
that will be mentioned, and this will be for one line and the second line is the same:

 First stage: Water extraction, treatment and purification

In first stage of Manufacturing they start to extract the water from the well to big tanks

then the water go through pipes to treatment and purification they add the purification

chemicals to the devices and the water goes through the devices and then save the water in

big tanks for the third stage and in each stage they lose Diesel for the generators and the

lose maintenance for each machine and the calculate the depreciation and in this stage they

need 3 labor they calculate their wages and then divide by the output.

Approximately

Item Cost Per Liter

Direct Material 6.66 Y.R

Direct Labor 7.55 Y.R

Manufacturing overhead 9.33 Y.R

Total 24.54Y.R
  Second stage: Injection and blowing process

In this stage they Start by taking the materials which they are the Ampoules which they are

the most expansive material from the store they take one pallet which contain a lot of

Ampoule to the machine and the machine start to inject and blowing the Ampoules to

bottles then they are ready to the next stage and in each stage they lose Diesel for the

generators and the lose maintenance for each machine and the calculate the depreciation

and in this stage they need 3 labor they calculate their wages and then divide by the output.

Item Cost Per Bottle

Direct Material 40 Y.R

Direct Labor 6 Y.R

Manufacturing overhead 5 Y.R

Total 51Y.R
 Third stage: Filling stage
In this stage the bottles are ready from the previous the water come from the tanks
through pipes to the machine and the machine fill the bottles and the labor add the
caps of the bottles to the machine and the machine close the bottles by the caps
then they are ready to the next stage and in each stage they lose Diesel for the
generators and the lose maintenance for each machine and the calculate the
depreciation and in this stage they need 3 labor they calculate their wages and then
divide by the output.

Approximately

Item Cost Per Bottle

Direct Material 4 Y.R

Direct Labor 6 Y.R

Manufacturing overhead 3 Y.R

Total 13Y.R

 Fourth stage : Label stage

In this stage the bottle is ready in the production line from the previous stage so the
labor just add the labels to the machine and switch on the machine and the machine
start label each bottle then they are ready to the next stage and in each stage they
lose Diesel for the generators and the lose maintenance for each machine and the
calculate the depreciation and in this stage they need 4 labor they calculate their
wages and then divide by the output.

Approximately
 Item Cost Per Bottle

Direct Material 2 Y.R

Direct Labor 8 Y.R

Manufacturing overhead 2 Y.R

Total 12Y.R

 Fifth stage: Packaging Stage

In this stage the labor add the plastic which cover each 20 bottle from upper together
and add the carton which cover them from down to the machine and the machine start
packaging them then they takes them to the warehouses or to tracks and in each stage
they lose Diesel for the generators and the lose maintenance for each machine and the
calculate the depreciation and in this stage they need 2 labor they calculate their wages
and then divide by the output and after this stage the calculate the cost for each stage
they get the total cost .
 Approximately

Item Cost Per Bottle

Direct Material 5 Y.R

Direct Labor 4 Y.R

Manufacturing overhead 3 Y.R

Total 12Y.R

Total cost
Approximately

Item Cost Per Pcs

Water extraction, treatment and purification 18 Y.R

(24.54Y X 0.75 ML)

Injection and blowing Stage 51 Y.R

Filling Stage 13 Y.R

Label Stage 12 Y.R

Packaging Stage 12 Y.R

Total 106Y.R
8. Recommendation :
 Activity-based costing has already come up as a new generation concept in
trade and commerce. It has changed the traditional view of cost and
management accounting. It measures cost more accurately than other
volume-based cost system. As more accurate overhead cost allocations
lead to fewer distortions, it acts as a performance evaluation tool.

 Arwa company prefer to use (ABC) in Shamlan private factory that

manufactures mineral water because it is a manufacturing industry and
because it enhances the reliability of cost data, thus producing almost real
costs and a better classification of costs incurred by the company during
the production process.

 The growing industrial complexity and product diversity have made the
emergence of ABC system for growing firms. As a powerful tool for decision
making purpose, the major advantages of ABC systems that Arwa Company
will get of using ABC systems are:
 ABC increased operational performance by allocating overhead costs based
on the actual consumption on the resources by each activity.
 ABC recognizes the interdependencies of cost drivers to activities.
 It enables the management to see where the most important costs occur as
well as what provides them.
 Decisions about improving pricing, marketing, product designing and
product mix can be made more efficiently by implementing an ABC system.
 ABC system is the suitable method for correct and accurate information.
 Redeploying a resource from a non-value-added to a value-added activity.
 By identifying the weak product lines and accurate costs, ABC helps to
increase organizational efficiency and profitability.
 Completely eliminating a non-value-adding activity ABC can takeout costs.
 Identifying and correcting an error that was not budgeted for correcting an
error that was not budgeted for correction but would have caused an
expense had it not been corrected.
 Provide Growth by removing a bottleneck that was causing a capacity
constraint.
 It helps industrial marketers in three ways; it results in cost estimates to
use in pricing, guides industrial marketers to adjust in negotiations to yield
significant cost reductions and indicates areas for change in operations to
permit cost reductions that will allow the company to satisfy customer
wishes better.